Delta Air Lines Wins Stock Drop Suit Appeal

The appellate court said the highly deferential “abuse of
discretion” standard, as set forth in Lanfear v. Home Depot (see “ERISA
Imposes No Duty to Disclose Certain Information”), applied to the allegations
set forth in the complaint (Smith v. Delta Air Lines) against Delta. The
court conceded that during the period in question Delta
undeniably faced business challenges (see “Delta
Asks to Void ‘Worthless’ Employee Stock Options”), but the plan required
defendants to offer participants investments in Delta stock and the defendants had abided by those provisions.

According to the court opinion, lead plaintiff Dennis Smith
contended that with the benefit of hindsight, defendants should have known
Delta’s turnaround efforts would fail. But the court disagreed, saying that was not at all
obvious at the time, as underscored by market movements during the class
period. “Because a reasonable fiduciary could have concluded that investments
in Delta stock during the class period remained appropriate, Smith’s prudence
claim fails,” the court wrote.

The Lanfear standard applies to fiduciaries
of ESOP plans as well as other Employee Retirement Income Security Act (ERISA)
plans that “encourage or require investment in employer stock.” The 11th Circuit
agreed with Delta that, at the very least, the plan’s many provisions addressing
investments in Delta stock made clear that the defendants were “encouraged” to offer
employer stock as an investment option for participants. “That is all that is
required to bring this case within the scope of Lanfear,” the court said in its
opinion.